Connelly Industries is evaluating investing in solar panels to provide some of the ­electrical needs of its main building in Ann Arbor, Michigan. The solar panel project would cost $ 600,000 and would provide cost savings in its utility bills of $ 40,000 per year. It is anticipated that the solar panels would have a life of 20 years and would have no r­esidual value.

1. Calculate the payback period in years of the solar panel project.
2. If the company uses a discount rate of 10%, what is the net present value of this project?
3. If the company has a rule that no projects will be undertaken that would have a pay-back period of more than five years, would this investment be accepted? If not, what arguments could the energy manager make to try to obtain approval for the ­solar panel project?

  • CreatedAugust 27, 2014
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